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LAWRIE WILLIAMS: Gold squeaks back above $1,900

Instead of building on its plus $1,900 mark achieved at the weekend, gold seemed to be having trouble staying above $1,900 an ounce once U.S. markets re-opened Tuesday after the Memorial Day long weekend.  It hovered above and below the $1,900 mark before seemingly settling at the end of the day at  a fraction below.  Overnight Asian and early European trade saw it settle a little below the $1,900 level too on Wednesday morning although the price picked up above $1,900 immediately ahead of the U.S. open, where it has stayed so far without making a decisive move.

We had already expressed some doubt as to whether May’s strong upwards trend, when gold put on about 7%, would be allowed to continue unchecked.  The question now is whether or not $1,900 will provide a temporary top for the metal price, or perhaps a consolidation level.  Silver too closed lower on Tuesday being initially unable to maintain the $28 level which it had been trading comfortably above earlier, but again it hit $28 again when U.S. markets opened today and then rose a little beyond that.

We suspect that gold and silver prices will consolidate somewhere around current levels, with movement above or below dependent on data releases in the U.S. and on the statements released in and around the FOMC meeting mid-month.  However we do see the overall trend as upwards, but for the moment not encompassing the kind of speedy progress made in the past few weeks.  We do expect the $1,950 level for gold to be attacked in the weeks ahead,  and perhaps before the  end of the month, but may have to wait a little before $2,000 gold is achieved again,  We suspect this may come about around the anniversary of that level being reached last year in early August.

Back in 2020 the break above $2,000 for gold was followed by an around 7-month price decline which set in before prices started to rise again.  This time around we do see gold and silver prices stabilising at higher levels and our previously-expressed year-end target of gold at $2,225 remains in place.  Beyond that much will likely depend on the U.S. Federal Reserve and whether it starts the tapering process or not given that there is now an apparent rise in price and wage inflation impacting the markets.

So far the Fed has been adamant that no tapering process will begin until 2022, or later, with interest rates remaining at their current extremely low levels.  If any tapering does begin it will likely first be seen in a reduction in the bond purchasing programme.  Neither the Fed, nor the Biden Administration, will be inclined to set interest rate rises in motion which would almost certainly adversely affect the equities markets.  If this were to happen, it would be seen by the public at large as an indicator that perhaps the U.S. economy is not as robust as the Fed and the government would have us believe.  The Fed certainly won’t want to be seen as the instigator of an equities crash which could happen if there is an anticipation of interest rate rises ahead.

As we have noted before, gold and silver prices are showing some strength at the moment now that the big outflows from the precious metals-backed ETFs have switched back to inflows, and Asian gold demand appears to be picking up nicely after a severely depressed 2020.  There are also indications that central bank buying could pick up in the second half of the year.  Things are probably looking more and more positive for gold as the year progresses – and where gold leads, silver tends to follow.

02 Jun 2021 | Categories: Gold, Silver, US, FOMC

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